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Mutual Funds Scorecard: January 26 Edition
Iuri Struta
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Corbett investigated whether U.S. domestic equity mutual fund managers have been able to capitalize on broad style movements through style-rotation strategies, or whether this behavior eroded value. His study covered almost 6,000 funds for the period from January 2010 to August 2015. Style rotation was measured through both a returns-based (using factor regressions) and a holdings-based (using Morningstar style boxes) approach. The following is a summary of his findings:
In a recent study, Morningstar found that over the three years ending July 2014, TAA funds gained an annual average of 7.8%, or 3.8% per year behind their benchmarks. In addition, Corbett’s finding that only about 2% of funds exhibited statistically significant alphas is consistent with what professors Eugene Fama and Kenneth French found in their paper, Luck Versus Skill in the Cross-Section of Mutual Fund Returns, which was published in the October 2010 edition of the Journal of Finance. They found that only managers in the 98th and 99th percentiles showed evidence of statistically significant skill.
As my co-author, Andrew Berkin, and I explain in our book, “The Incredible Shrinking Alpha,” there are four trends that explain why this is the case: the supply of victims that can be exploited has fallen dramatically; sources of potential alpha have been disappearing as academic research is published that converts alpha into beta (a common factor); the supply of dollars chasing alpha has grown dramatically; and the competition has become increasingly more skillful. These trends have conspired to reduce the odds of outperforming by a relative 90%! And remember, all the above figures are based on pre-tax returns, and for taxable investors the largest expense of active management is often taxes.
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News
Iuri Struta
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Check out the latest edition of mutual funds scorecard.
Kristan Wojnar, RCC™
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This week we are completely focused on your marketing strategies and tactics.
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Daniel Cross
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These funds specifically invest in emerging market economies with the largest being China...
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
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Corbett investigated whether U.S. domestic equity mutual fund managers have been able to capitalize on broad style movements through style-rotation strategies, or whether this behavior eroded value. His study covered almost 6,000 funds for the period from January 2010 to August 2015. Style rotation was measured through both a returns-based (using factor regressions) and a holdings-based (using Morningstar style boxes) approach. The following is a summary of his findings:
In a recent study, Morningstar found that over the three years ending July 2014, TAA funds gained an annual average of 7.8%, or 3.8% per year behind their benchmarks. In addition, Corbett’s finding that only about 2% of funds exhibited statistically significant alphas is consistent with what professors Eugene Fama and Kenneth French found in their paper, Luck Versus Skill in the Cross-Section of Mutual Fund Returns, which was published in the October 2010 edition of the Journal of Finance. They found that only managers in the 98th and 99th percentiles showed evidence of statistically significant skill.
As my co-author, Andrew Berkin, and I explain in our book, “The Incredible Shrinking Alpha,” there are four trends that explain why this is the case: the supply of victims that can be exploited has fallen dramatically; sources of potential alpha have been disappearing as academic research is published that converts alpha into beta (a common factor); the supply of dollars chasing alpha has grown dramatically; and the competition has become increasingly more skillful. These trends have conspired to reduce the odds of outperforming by a relative 90%! And remember, all the above figures are based on pre-tax returns, and for taxable investors the largest expense of active management is often taxes.
Receive email updates about best performers, news, CE accredited webcasts and more.
News
Iuri Struta
|
Check out the latest edition of mutual funds scorecard.
Kristan Wojnar, RCC™
|
This week we are completely focused on your marketing strategies and tactics.
News
Daniel Cross
|
These funds specifically invest in emerging market economies with the largest being China...
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
Mutual Fund Education
Justin Kuepper
|
Let's take a closer look at how ESG investments have outperformed during the...
Mutual Fund Education
Daniel Cross
|
While CITs and mutual funds share many similarities, there are some key differences...
Mutual Fund Education
Sam Bourgi
|
The phrase ‘bear market’ has been thrown around a lot lately, but it...